Selling Web sitesDomain AssetsIce in Alaska

How do you value a web site as an asset? If your company is closing down, what is the web site worth? Increasingly common questions, for which there are no standard answers. And there won’t be any “standard answers” for some time to come. That’s not how business works at this stage of the Internet development game. Oh sure there are sincere efforts underway to assign an estimated value to web properties, so that they can be sold and traded and perhaps most importantly insured, but that is not the same as assigning true values.

Estimating asset value is a process of managing risk through compromise and assumption and reliance upon safeguards via distributing the risk. As the system learns to manage the risk, it builds in the various factors needed to cushion itself against the various flaws in such an estimating process. Reward has to follow risk, and investment has to parallel that risk. The economic system where we work and play has to absorb the risk and pay out the profits. Our capitalist system seeks to externalize costs where risk is difficult to manage.. as painful as that may be for the uninitiated. Our system is getting ready to do that with web sites… but the real important number for buyers and sellers is the liquidity value – the price it would get if it were sold. Until we all have much more experience buying and selling web sites, no one can estimate what someone will pay right now for a web site. Only the buyer knows what he is willing to pay right now.

So you have this block of ice. And you are in Alaska. What is it worth?

A good salesman can sell ice to Eskimos, as the saying goes. Of course she can. In this case liquidity is probably a poor term to use (melted ice is no longer ice?) but the point is the same. The ice will sell for what someone is willing to pay. Otherwise, it has no value and may even come with a cost (it takes up space, absorbs heat, makes a mess, etc).

So if the ice has no value and maybe even comes at a cost, how does it get sold? The broker adds value by doing work. Find the buyer. Make the pitch to justify the value. Provide what is needed for the buyer to manage risk and see the potential. Help externalize the risk associated with disposing of the capital and assuming the asset. The key to selling a domain asset is selling, just as the key to selling ice in Alaska is selling. But selling is not simply talking. It is work. Due diligence. Technical work, market research, investigative work, legal work, and innovation. Did I mention innovation? Innovation is a form of risk…like an investment of time and effort. You remember that part I said earlier, where reward has to follow risk for the system to function?

Why is it that in Canada, almost every community ice arena is build next to a community pool complex? Build a community ice rink and you start throwing off heat into the atmosphere, because you draw heat out of water to make ice. Build that same arena adjacent to a swimming pool and you now have a heated pool for almost no additional cost. Why does the US keep building free-standing ice arenas and free-standing, unheated community pools?

A good SEO can turn a $9 domain into a $1000 month revenue generator, which some people say they can sell for 3-5 times annual revenues ($9 becomes $36,000). The amount of SEO work required probably has a real cost of $15,000 and a market value of $30,000. That’s why so many SEO talents build only for themselves (invest $15,009.00 and earn $36,000). There aren’t many investors paying $30k to build out a site that will sell for $36k at this time (there will be someday.. that’s a decent return if the risk is able to be managed). But there are so many other avenues for finding value that yes, many people are investing the $30k when they are able to see the value beyond that $36k market price — domain name appreciation, market leverage, added-value from a well-crafted portfolio, etc etc. And of course that broker issue – finding the buyer willing to pay 8.5x revenue instead of 3x revenue suddenly increases the profits by another $275,000. Scale these numbers as you see fit…

If you are holding a developed web site that has no value to the owners, hire a good domain broker and hire a good SEO consultant and start fresh in the business of selling that web site. Yes it requires an investment, because reward follows risk taking. But lucky for you, if the web site has potential, those players who can realize the potential for you (selling the ice to Eskimos) will do it for a cut of the sale (some of the ice). When you think about it, its like paying that ice salesman for her services, with some of the ice. Sounds like a no-brainer to me. The only real investment required is the time you spend mulling it over… while the ice is melting.

7 Comments

Excellent job highlighting risk as an important factor in valuing sites. Of course, supply/demand also play a huge role; proxies, youtube clones etc. are less valuable than, say, a succesful Xbox forum. And there are other factors too, as you highlight, such as revenues/monetization. I saw such an Xbox forum go on Sitepoint for 20K cuz it was unmonetized (the search marketing was phenomenal, however). You can assume that the buyer made a fortune on that one…

Two other points:

My ice rink is about a block away from the pool, and the pool isn’t heated. This being in Montreal, Quebec.

Eskimos is actually a derogatory term; it means those who eat meat (red meat, specifically, I believe). Those first nations actually refer to themselves collectively as the Innu (singular: Innuit).

Your ice theory does not float. You can spin and spin all your intellectual yarns and the truth of the matter is, you are oh so wrong. The idea that all the investors, that have bought high quality names are dillusional,is hardly pallatable my freind. Just ask anyone how much Google.com or eBay.com or Business.com or ETC ETC. are worth? Oh I know your answer is nothing of course. LOL

Oh and by the way , not all domainers buy names to flip for a profit. We to are not brainless bots, as you would like to portray. Looking forward to hearing your response, I’m sure I will.

John replies: Wow. I don’t know what YOu read, but maybe my little piece was misunderstood? I have no idea where you go those conclusions from…that domainers flip domains for profit, are portrayed as brainless, or that a successful business on a .com has no value. I find your comment bizarre. Where di I suggest that investors in high quality domains are dillusional [sic]?

You’re welcome to comment, but this one escapes me. I suggested that someone holding a used domain that has no apparent asset value, consider hiring a domain expert an a marketing expert to find the latent value. You get offended (?) Whatever… I’ll still allow comments anyway.

The Market is still small and the supply is high.
Not that quality domains are not worth the millions that companies / investors pay for them.

Land did not have value until someone bought it. Get this to add value to it.

Your right Buzz = Money

The issue with domains(Digital Properties) right now is (like you said) a good marketer can create buzz (add Perceived Value) to any domain for a moment. Sure the Links and Keywords are still there for a time. But the buzz passes. Gotta hate buyers remorse.

Unlike Buildings where People have to Drive by them. And Land that there is a limited supply of.

Something to think about in our quest to stabilize our Digital Properties values.

Your personal homes value is directly effected by our neighborhood.

@Dennis: I think in these comments we are seeing the strong difference between domainer and web marketer perspectives. I spoke of the market for selling a website based on multiples of revenue, and therefore what matters is revenue. The SEO can identify opportunities to monetize, and thus increase revenue. As for intrinsic value of the domain name, that’s why I bring in a domain broker. But for most situations of this type.. where a business is shutting down, and has a website with no perceived value (it is no longer generating revenue because the sales team has been let go, or the customers went elsewhere…) … the domain name is not cars.com or cigars.com. It’s FriendlyWidgets.com or RainbowServices.com or something which might have some intrinsic domain value eventually, but which could have a very real market value if properly positioned (with a revenue stream).

That’s not the same as buzz, and doesn’t necessarily go away after the sale, and is not really based on the real estate model.

My point is most operating web businesses have value, and most failed businesses did not know how to see or monetize that value. Soif you are holding a “worthless asset” get a good SEO and perhaps a domain broker involved… there’s probably latent value in that web property.

I’m with you all the way here john.
Quality seo can turn any domain from a page 4-5 nothing site to a page 1 monster.
Combine this with quality user interface, design and items, interlinked with a dropshipper, and any good quality seo’er will see this is the path to go for, instead of getting paid a pittence by some company for seo… companies just dont understand how time consuming seo is.. getting to page 1 doesn’t take a week and companies aren’t usually happy to pay per day / per hour.